Commercial property is different compared to residential property in that the deed of lease is very much in favour of the landlord, however, it takes experts to understand the clauses and contents to achieve the best results in both the short-term and the long-term. This also has to be achieved with the objective of securing and retaining tenants of choice.
Benefits of Commercial Property Managers
To achieve your financial objectives and to ensure that tenants meet their obligations with regard to the deed of lease, Commercial Property Management companies are a good option, especially when things get difficult. More importantly, it is better not to wait until there is a problem because leases and variations to leases take a long time to correct.
We NAI Harcourts is an Auckland-based commercial property management company, with years’ experience in commercial property management, we found when a commercial property is managed by the owner, there are many examples they come across where an issue has been missed or not dealt with correctly, affecting income, the building, compliance or the quality of the lease terms.
Property Owners as Property Managers
Owners of commercial properties can fail to interpret the deed of lease and miss charging tenants correctly or not handle the all-important lease renewals and rent reviews and enforce the obligations with the tenants. This is a specific part of managing a property that is a challenge where long-term historic relationships and personalities can complicate the processes. Having a commercial property manager is one of the best ways to achieve objective management that is not based on the history of the relationship and more on the correct processes, time-frames and commercial terms.
Many owners also are unclear as to what tenants need to pay for as part of their lease when it comes to operating expenses, maintenance, professional fees and cost at the final expiry of their lease. This is an area where a lot of money is not recovered and also affects profitability.
Discussions NAI Harcourts had recently with a prospective client who owned seven commercial properties that they did not re-charge maintenance to the tenant at all and that the owner arranged and paid for all maintenance. Additionally, when a tenant left there were poor records as to the original condition of the premises and no instructions to the tenant to make-good (repair) and reinstate the premises to the state at the lease commencement date.
Another recent example is where a landlord owner came to NAI Harcourts seeking assistance with a slow-paying and difficult tenant. The background was that the owner-managed the property herself and used a leasing agent to lease one vacancy, however, the new tenant always paid late and blamed the economy along with many other excuses. Over many years the landlord owner was not able to achieve any rent increases and the management of the property was causing stress for her. She appointed NAI Harcourts to get professionals to resolve the issues. After she talked to our team, she has just realised a benefit to her as an owner was the fact that the cost of professional external commercial property management can be recovered from the tenant as an operating expense in the deed of lease. It was difficult to improve the performance of the tenant who has had bad habits for years. We decided to focus on getting compliance and then eviction.
The summary of events was like this:
- First visited the property, did an inspection and talked to tenant about any issues
- Managed and monitored rental payments following a strict procedure of text reminders, email reminders and 10-day notices etc.
- The tenant was still paying late every month due to bad habits. The property manager visited tenant’s premises and noticed this tenant also had another restaurant in the same area and was struggling to run two restaurants, contributing to the late payment of rent.
- When continued non-payment occurred, firstly the property manager charged default interest to this tenant to apply pressure to pay the rent on time and in full. Secondly; there was a necessary liaison with a charitable trust (we found out the main source of income for this tenancy was from gaming machines) to find out information about gaming license (was the license associated with the business or with the property itself).
- In order to assist the owner with cash-flow management, the property manager involved an accountant to check if any future big bills needed to be paid from rent received, they had to make certain that there were sufficient funds or withhold rental income to pay rates & body corporate levies to avoid penalties and protect owner’s credibility.
- As a next step, the property manager sourced a local leasing agent to provide an updated market rental assessment and start looking for a new tenant.
- It was important as a next step to work with the owner’s solicitor to agree on the legal obligations. Then the solicitor drafted a Property Law Act (PLA) notice and served this to the tenant which provided a final period to pay all outstanding debt.
- Worked with a charitable trust and informed them this tenant was struggling with his business and we were going through the eviction process. It would affect the tenant’s ability to paying a rental of gambling machines.
- When the tenant did not pay all outstanding debts, the property manager arranged a locksmith to change the locks, contacted security guard in advance in case it was needed.
- When the tenant would still not vacate the premises, a High court order was obtained to obtain possession of the premises.
- In the meantime, we found interested tenant who wanted to take over this space.
In conclusion, having a quality tenant first is important. Experienced and professional property managers are vital to ensure that the property is managed to ensure tenant selection and that the tenant meets all their obligations in the deed of lease.
Key Tasks of a Property Management Company.
Too many tasks to mention, however, some of the key tasks include:
- Rent reviews
- Lease renewals
- Assignments of lease
- Establishing and monitoring operating expense budgets or direct on-charged costs
- Supervision and attendance for compliance with Acts of Parliament and other local authority regulations
- Commencement of lease documentation and reporting
- Inspections and associated reports and action
- Repairs and maintenance
- Representation to Body Corporate organisations as part of the Unit Titles Act 2010
- Receipting of rent, managing arrears and related action
- Receipting of invoices, coding and payment
One of the most important tasks for a property manager is to manage tenants.